bulletin no. 2002–52 december 30, 2002 highlights of this … · 2012. 7. 17. · rev. rul....

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2002–85, page 986.Section 368(a)(1)(D) reorganization. Guidance is provided asto whether a transaction otherwise qualifying under section368(a)(1)(D) of the Code will be prevented from so qualifying whenthe acquiring corporation transfers the target corporation’s as-sets to a subsidiary controlled by the acquiring corporation. Rev.Rul. 74–545 obsoleted.

Rev. Rul. 2002–87, page 989.LIFO; price indexes; department stores. The October 2002Bureau of Labor Statistics price indexes are accepted for use bydepartment stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years endedon, or with reference to, October 31, 2002.

Rev. Rul. 2002–89, page 984.Captive insurance. This ruling considers circumstances un-der which arrangements between a domestic parent corpora-tion and its wholly owned insurance subsidiary constituteinsurance for federal income tax purposes. Rev. Rul. 2001–31amplified.

Rev. Rul. 2002–90, page 985.Captive insurance. This ruling considers circumstances un-der which payments for professional liability coverage by a num-ber of operating subsidiaries to an insurance subsidiary of acommon parent constitute insurance for federal income tax pur-poses. Rev. Rul. 2001–31 amplified.

Rev. Rul. 2002–91, page 991.Captive insurance; group captive. This ruling sets forth cir-cumstances under which amounts paid to a group captive of un-related insureds are deductible as insurance premiums and inwhich the group captive qualifies as an insurance company.

EMPLOYEE PLANS

Rev. Rul. 2002–88, page 995.Duration of COBRA continuation coverage and divorce. Thisruling provides guidance on when COBRA continuation cov-erage must commence if, in anticipation of divorce, an em-ployee drops the coverage of a spouse under a group health planof the employee’s employer.

ESTATE TAX

Rev. Rul. 2002–86, page 993.Combat zone-related deaths and deaths of victims of cer-tain terrorist attacks. This ruling provides sample estate taxcalculations, under section 2201 of the Code, for the estates ofvictims of specified terrorist attacks and members of the armedforces who died as a result of active service in a combat zone.Rev. Rul. 78–361 modified and superseded.

EXCISE TAX

Rev. Rul. 2002–88, page 995.Duration of COBRA continuation coverage and divorce. Thisruling provides guidance on when COBRA continuation cover-age must commence if, in anticipation of divorce, an employeedrops the coverage of a spouse under a group health plan of theemployee’s employer.

Announcement 2002–115, page 999.The Service announces changes to excise tax rates effective af-ter December 31, 2002.

(Continued on the next page)

Bulletin No. 2002–52December 30, 2002

Finding Lists begin on page ii.

ADMINISTRATIVE

Notice 2002–77, page 997.The Service and the Department of Treasury announce their in-tention to amend section 1.367(a)–3(d) of the regulations to pro-vide specifically that a U.S. person’s exchange of stock orsecurities of a corporation (the “acquired corporation”) for stockor securities of a foreign acquiring corporation in a reorganiza-tion under section 368(a)(1)(D) of the Code in which the for-eign acquiring corporation transfers part or all of the acquiredcorporation’s assets to a subsidiary, controlled by the acquir-ing corporation pursuant to the plan of reorganization, consti-tutes an indirect transfer of stock or securities by the U.S. personto the foreign acquiring corporation.

Rev. Proc. 2002–75, page 997.Qualification as insurance. This procedure modifies Rev. Proc.2002–3, 2002–1 I.R.B. 117, by removing sections 4.01(11) and4.01(41) from the list of areas in which the Service ordinarily willnot issue rulings or determination letters. These sections con-cerned whether there is adequate risk shifting and risk distribu-tion for a transaction to constitute insurance for federal incometax purposes. Rev. Proc. 2002–3 modified.

December 30, 2002 2002–52 I.R.B.

The IRS Mission

Provide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applyingthe tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument of theCommissioner of Internal Revenue for announcing official rul-ings and procedures of the Internal Revenue Service and for pub-lishing Treasury Decisions, Executive Orders, Tax Conventions,legislation, court decisions, and other items of general inter-est. It is published weekly and may be obtained from the Super-intendent of Documents on a subscription basis. Bulletin contentsare consolidated semiannually into Cumulative Bulletins, whichare sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, modify,or amend any of those previously published in the Bulletin. All pub-lished rulings apply retroactively unless otherwise indicated. Pro-cedures relating solely to matters of internal management arenot published; however, statements of internal practices and pro-cedures that affect the rights and duties of taxpayers are pub-lished.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpay-ers or technical advice to Service field offices, identifying de-tails and information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not be re-lied on, used, or cited as precedents by Service personnel in thedisposition of other cases. In applying published rulings and pro-cedures, the effect of subsequent legislation, regulations, court

decisions, rulings, and procedures must be considered, and Ser-vice personnel and others concerned are cautioned against reach-ing the same conclusions in other cases unless the facts andcircumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A, TaxConventions and Other Related Items, and Subpart B, Legisla-tion and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to these sub-jects are contained in the other Parts and Subparts. Also in-cluded in this part are Bank Secrecy Act Administrative Rulings.Bank Secrecy Act Administrative Rulings are issued by the De-partment of the Treasury’s Office of the Assistant Secretary (En-forcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The first Bulletin for each month includes a cumulative index forthe matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the first Bulletin of the succeeding semiannual pe-riod, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2002–52 I.R.B. December 30, 2002

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 162.—Trade or Busi-ness Expenses

26 CFR 1.162–1: Business expenses.

(Also §§ 801, 831.)

Captive insurance. This ruling consid-ers circumstances under which arrange-ments between a domestic parentcorporation and its wholly owned insur-ance subsidiary constitute insurance for fed-eral income tax purposes.

Rev. Rul. 2002–89

ISSUE

Are the amounts paid by a domestic par-ent corporation to its wholly owned insur-ance subsidiary deductible as “insurancepremiums” under § 162 of the Internal Rev-enue Code?

FACTS

Situation 1. P, a domestic corporation,enters into an annual arrangement with itswholly owned domestic subsidiary Swhereby S “insures” the professional li-ability risks of P either directly or as a re-insurer of these risks. S is regulated as aninsurance company in each state where Sdoes business.

The amounts P pays to S under the ar-rangement are established according to cus-tomary industry rating formulas. In allrespects, the parties conduct themselves con-sistently with the standards applicable to aninsurance arrangement between unrelatedparties.

In implementing the arrangement, S mayperform all necessary administrative tasks,or it may outsource those tasks at prevail-ing commercial market rates. P does notprovide any guarantee of S’s performance,and all funds and business records of P andS are separately maintained. S does not loanany funds to P.

In addition to the arrangement with P,S enters into insurance contracts wherebyS serves as a direct insurer or a reinsurerof the professional liability risks of enti-ties unrelated to P or S. The risks of un-related entities and those of P arehomogeneous. The amounts S receives from

these unrelated entities under these insur-ance contracts likewise are established ac-cording to customary industry ratingformulas.

The premiums S earns from the arrange-ment with P constitute 90% of S’s total pre-miums earned during the taxable year onboth a gross and net basis. The liability cov-erage S provides to P accounts for 90% ofthe total risks borne by S.

Situation 2. Situation 2 is the same asSituation 1 except that the premiums S earnsfrom the arrangement with P constitute lessthan 50% of S’s total premiums earned dur-ing the taxable year on both a gross and netbasis. The liability coverage S provides toP accounts for less that 50% of the totalrisks borne by S.

LAW AND ANALYSIS

Section 162(a) of the Code provides, inpart, that there shall be allowed as a de-duction all the ordinary and necessary ex-penses paid or incurred during the taxableyear in carrying on any trade or business.

Section 1.162–1(a) of the Income TaxRegulations provides, in part, that amongthe items included in business expenses areinsurance premiums against fire, storms,theft, accident, or other similar losses in thecase of a business.

Neither the Code nor the regulations de-fine the terms “insurance” or “insurancecontract.” The United States Supreme Court,however, has explained that in order for anarrangement to constitute insurance for fed-eral income tax purposes, both risk shift-ing and risk distribution must be present.Helvering v. LeGierse, 312 U.S. 531 (1941).

Risk shifting occurs if a person facingthe possibility of an economic loss trans-fers some or all of the financial conse-quences of the potential loss to the insurer,such that a loss by the insured does not af-fect the insured because the loss is offsetby the insurance payment. Risk distribu-tion incorporates the statistical phenom-enon known as the law of large numbers.Distributing risk allows the insurer to re-duce the possibility that a single costlyclaim will exceed the amount taken in aspremiums and set aside for the payment ofsuch a claim. By assuming numerous rela-tively small, independent risks that occur

randomly over time, the insurer smooths outlosses to match more closely its receipt ofpremiums. Clougherty Packing Co. v. Com-missioner, 811 F.2d 1297, 1300 (9th Cir.1987). Risk distribution necessarily en-tails a pooling of premiums, so that a po-tential insured is not in significant partpaying for its own risks. See Humana, Inc.v. Commissioner, 881 F.2d 247, 257 (6thCir. 1989).

No court has held that a transaction be-tween a parent and its wholly-owned sub-sidiary satisfies the requirements of riskshifting and risk distribution if only the risksof the parent are “insured.” See Stearns-Roger Corp. v. United States, 774 F.2d 414(10th Cir. 1985); Carnation Co. v. Com-missioner, 640 F.2d 1010 (9th Cir. 1981),cert. denied 454 U.S. 965 (1981). How-ever, courts have held that an arrange-ment between a parent and its subsidiarycan constitute insurance because the par-ent’s premiums are pooled with those of un-related parties if (i) insurance risk is present,(ii) risk is shifted and distributed, and (iii)the transaction is of the type that is insur-ance in the commonly accepted sense. See,e.g., Ocean Drilling & Exploration Co. v.United States, 988 F.2d 1135 (Fed. Cir.1993); AMERCO, Inc. v. Commissioner, 979F.2d 162 (9th Cir. 1992).

S is regulated as an insurance companyin each state in which it transacts busi-ness, and the arrangements between P andS and between S and entities unrelated toP or S are established and conducted con-sistently with the standards applicable to aninsurance arrangement. P does not guar-antee S’s performance and S does not makeany loans to P; P’s and S’s funds andrecords are separately maintained. The nar-row question presented in Situation 1 andSituation 2 is whether S underwrites suf-ficient risks of unrelated parties that the ar-rangement between P and S constitutesinsurance for federal income tax purposes.

In Situation 1, the premiums that S earnsfrom its arrangement with P constitute 90%of its total premiums earned during the tax-able year on both a gross and a net basis.The liability coverage S provides to P ac-counts for 90% of the total risks borne byS. No court has treated such an arrange-ment between a parent and its wholly-owned subsidiary as insurance. To the

2002–52 I.R.B. 984 December 30, 2002

contrary, the arrangement lacks the requi-site risk shifting and risk distribution to con-stitute insurance for federal income taxpurposes.

In Situation 2, the premiums that S earnsfrom its arrangement with P constitute lessthan 50% of the total premiums S earnedduring the taxable year on both a gross anda net basis. The liability coverage S pro-vides to P accounts for less than 50% ofthe total risks borne by S. The premiumsand risks of P are thus pooled with thoseof the unrelated insureds. The requisite riskshifting and risk distribution to constituteinsurance for federal income tax purposesare present. The arrangement is insurancein the commonly accepted sense.

HOLDINGS

In Situation 1, the arrangement betweenP and S does not constitute insurance forfederal income tax purposes, and amountspaid by P to S pursuant to that arrange-ment are not deductible as “insurance pre-miums” under § 162.

In Situation 2, the arrangement betweenP and S constitutes insurance for federal in-come tax purposes, and the amounts paidby P to S pursuant to that arrangement aredeductible as “insurance premiums” un-der § 162.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2001–31, 2001–1 C.B. 1348,is amplified.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is John E. Glover of the Office of theAssociate Chief Counsel (Financial Insti-tutions & Products). For further informa-tion regarding this revenue ruling, contactMr. Glover at (202) 622–3970 (not a toll-free call).

Captive insurance. This ruling consid-ers circumstances under which payments forprofessional liability coverage by a num-ber of operating subsidiaries to an insur-ance subsidiary of a common parentconstitute insurance for federal income taxpurposes.

Rev. Rul. 2002–90

ISSUE

Are the amounts paid for professional li-ability coverage by domestic operating sub-sidiaries to an insurance subsidiary of acommon parent deductible as “insurancepremiums” under § 162 of the Internal Rev-enue Code?

FACTS

P, a domestic holding company, owns allof the stock of 12 domestic subsidiaries thatprovide professional services. Each sub-sidiary in the P group has a geographic ter-ritory comprised of a state in which thesubsidiary provides professional services.The subsidiaries in the P group operate ona decentralized basis. The services pro-vided by the employees of each subsid-iary are performed under the generalguidance of a supervisory professional fora particular facility of the subsidiary. Thegeneral categories of the professional ser-vices rendered by each of the subsidiariesare the same throughout the P group. To-gether the 12 subsidiaries have a signifi-cant volume of independent, homogeneousrisks.

P, for a valid non-tax business purpose,forms S as a wholly-owned insurance sub-sidiary under the laws of State C. P pro-vides S adequate capital and S is fullylicensed in State C and in the 11 other stateswhere the respective operating subsidiar-ies conduct their professional service busi-nesses. S directly insures the professionalliability risks of the 12 operating subsid-iaries in the P group. S charges the 12 sub-sidiaries arms-length premiums, which areestablished according to customary indus-try rating formulas. None of the operat-ing subsidiaries have liability coverage forless than 5%, nor more than 15%, of thetotal risk insured by S. S retains the risksthat it insures from the 12 operating sub-sidiaries. There are no parental (or other re-lated party) guarantees of any kind madein favor of S. S does not loan any funds toP or to the 12 operating subsidiaries. In allrespects, the parties conduct themselves ina manner consistent with the standards ap-plicable to an insurance arrangement be-tween unrelated parties. S does not providecoverage to any entity other than the 12 op-erating subsidiaries.

LAW AND ANALYSIS



Neither the Code nor the regulations de-fine the terms “insurance” or “insurancecontract.” The United States Supreme Court,however, has explained that in order for anarrangement to constitute “insurance” forfederal income tax purposes, both risk shift-ing and risk distribution must be present.Helvering v. LeGierse, 312 U.S. 531 (1941).

Risk shifting occurs if a person facingthe possibility of an economic loss trans-fers some or all of the financial conse-quences of the potential loss to the insurer,such that a loss by the insured does not af-fect the insured because the loss is offsetby the insurance payment. Risk distribu-tion incorporates the statistical phenom-enon known as the law of large numbers.Distributing risk allows the insurer to re-duce the possibility that a single costlyclaim will exceed the amount taken in aspremiums and set aside for the payment ofsuch a claim. By assuming numerous rela-tively small, independent risks that occurrandomly over time, the insurer smooths outlosses to match more closely its receipt ofpremiums. Clougherty Packing Co. v. Com-missioner, 811 F.2d 1297, 1300 (9th Cir.1987). Risk distribution necessarily en-tails a pooling of premiums, so that a po-tential insured is not in significant partpaying for its own risks. See Humana Inc.v. Commissioner, 881 F.2d 247, 257 (6thCir. 1989).

In Humana, the United States Court ofAppeals for the Sixth Circuit held that ar-rangements between a parent corporationand its insurance company subsidiary didnot constitute insurance for federal in-come tax purposes. The court also held,however, that arrangements between the in-surance company subsidiary and severaldozen other subsidiaries of the parent (op-erating an even larger number of hospi-tals) qualified as insurance for federal

December 30, 2002 985 2002–52 I.R.B.

income tax purposes because the requi-site risk shifting and risk distribution werepresent. But see Malone & Hyde, Inc. v.Commissioner, 62 F.3d 835 (6th Cir. 1995)(concluding the lack of a business pur-pose, the undercapitalization of the off-shore captive insurance subsidiary and theexistence of related party guarantees es-tablished that the substance of the trans-action did not support the taxpayer’scharacterization of the transaction as in-surance). In Kidde Industries, Inc. v. UnitedStates, 40 Fed. Cl. 42 (1997), the UnitedStates Court of Federal Claims concludedthat an arrangement between the captive in-surance subsidiary and each of the 100 op-erating subsidiaries of the same parentconstituted insurance for federal income taxpurposes. As in Humana, the insurer inKidde insured only entities within its af-filiated group during the taxable years at is-sue.

In the present case, the professional li-ability risks of 12 operating subsidiaries areshifted to S. Further, the premiums of theoperating subsidiaries, determined at arms-length, are pooled such that a loss by oneoperating subsidiary is borne, in substan-tial part, by the premiums paid by others.The 12 operating subsidiaries and S con-duct themselves in all respects as would un-related parties to a traditional insurancerelationship, and S is regulated as an in-surance company in each state where it doesbusiness. The narrow question presented iswhether P’s common ownership of the 12operating subsidiaries and S affects the con-clusion that the arrangements at issue areinsurance for federal income tax purposes.Under the facts presented, we conclude thearrangements between S and each of the 12operating subsidiaries of S’s parent consti-tute insurance for federal income tax pur-poses.

HOLDING

The amounts paid for professional li-ability coverage by the 12 domestic oper-ating subsidiaries to S are “insurancepremiums” deductible under § 162.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2001–31, 2001–1 C.B. 1348,is amplified.


The principal author of this revenue rul-

ing is William Sullivan of the Office of theAssociate Chief Counsel (Financial Insti-tutions & Products). For further informa-tion regarding this revenue ruling, contactMr. Sullivan at (202) 622–3970 (not a toll-free call).

A revenue ruling that sets forth circumstances un-der which amounts paid to a group captive of unre-lated insureds are deductible as insurance premiums.See Rev. Rul. 2002–91, page 991.

Section 368.—DefinitionsRelating to CorporateReorganizations

26 CFR 1.368–1: Purpose and scope of exception for

reorganization exchanges.

Section 368(a)(1)(D) reorganization.Guidance is provided as to whether a trans-action otherwise qualifying under section368(a)(1)(D) of the Code will be preventedfrom so qualifying when the acquiring cor-poration transfers the target corporation’sassets to a subsidiary controlled by the ac-quiring corporation. Rev. Rul. 74–545 ob-soleted.

Rev. Rul. 2002–85

ISSUE

Whether an acquiring corporation’s trans-fer of a target corporation’s assets to a sub-sidiary controlled by the acquiring cor-poration as part of a plan of reorganiza-tion will prevent a transaction that other-wise qualifies as a reorganization under§ 368(a)(1)(D) of the Internal Revenue Codefrom so qualifying.

FACTS

A, an individual, owns 100 percent ofT, a state X corporation. A also owns 100percent of P, a state Y corporation. For validbusiness reasons and pursuant to a plan ofreorganization, (i) T transfers all of its as-sets to P in exchange for consideration con-sisting of 70 percent P voting stock and 30percent cash, (ii) T then liquidates, distrib-uting the P voting stock and cash to A, and(iii) P subsequently transfers all of the T as-sets to S, a preexisting, wholly owned stateX subsidiary of P, in exchange for stock ofS. S will continue T’s historic business af-ter the transfer and P will retain the S stock.

Without regard to P’s transfer of all the Tassets to S, the transaction qualifies as a re-organization under § 368(a)(1)(D).

LAW

Section 368(a)(1)(D) provides that theterm reorganization means a transfer by acorporation of all or a part of its assets toanother corporation if immediately after thetransfer the transferor, or one or more of itsshareholders (including persons who wereshareholders immediately before the trans-fer), or any combination thereof, is in con-trol of the corporation to which the assetsare transferred; but only if, in pursuance ofthe plan, stock or securities of the corpo-ration to which the assets are transferred aredistributed in a transaction which quali-fies under § 354, 355, or 356.

Section 354(a) provides that, in gen-eral, no gain or loss shall be recognized ifstock or securities in a corporation a partyto a reorganization are, in pursuance of theplan of reorganization, exchanged solely forstock or securities in such corporation orin another corporation a party to the reor-ganization. Section 354(b)(1) provides that§ 354(a) shall not apply to an exchange inpursuance of a plan of reorganization withinthe meaning of subparagraph (D) or (G) of§ 368(a)(1) unless (A) the corporation towhich the assets are transferred acquiressubstantially all of the assets of the trans-feror of such assets; and (B) the stock, se-curities, and other properties received bysuch transferor, as well as the other prop-erties of such transferor, are distributed inpursuance of the plan of reorganization.

Section 368(a)(2)(A) provides that if atransaction is described in both §§ 368(a)(1)(C) and 368(a)(1)(D), then, for pur-poses of subchapter C (other than for pur-poses of § 368(a)(2)(C)), such transactionshall be treated as described only in§ 368(a)(1)(D).

Section 368(a)(2)(C) provides that atransaction otherwise qualifying under§ 368(a)(1)(A), (B), (C), or (G) shall not bedisqualified by reason of the fact that partor all of the assets or stock which were ac-quired in the transaction are transferred toa corporation controlled (as defined in§ 368(c)) by the corporation acquiring suchassets or stock.

Section 368(b) provides that the term “aparty to a reorganization” includes a cor-poration resulting from a reorganization, andboth corporations in the case of a reorga-

2002–52 I.R.B. 986 December 30, 2002

nization resulting from the acquisition byone corporation of the properties of an-other.

Congress enacted § 368(a)(2)(C) in re-sponse to the Supreme Court decisions inGroman v. Commissioner, 302 U.S. 82(1937), and Helvering v. Bashford, 302 U.S.454 (1938). In Groman, the shareholders ofone corporation (Target) entered into anagreement with another corporation (Par-ent) pursuant to which Target would mergeinto Parent’s newly formed subsidiary (Sub).In the transaction, the Target sharehold-ers transferred their Target shares to Sub inexchange for shares of Parent, shares ofSub, and cash, and Target liquidated. TheCourt concluded that, even though the statu-tory definition of “party to a reorganiza-tion” was not exclusive, Parent was not aparty to the reorganization because it re-ceived nothing in the exchange. The Courtthen stated that an exchange that is pursu-ant to a plan of reorganization is not tax-able to the extent the interest of thestockholders of a corporation continue tobe definitely represented in substantial mea-sure in a new or different corporation. Thestock of Parent, however, did not repre-sent a continued substantial interest in theassets conveyed to Sub. Because Parent wasnot a party to the reorganization, the Courtheld that the receipt of the stock of Par-ent was taxable.

In Bashford, a corporation (Parent)wished to acquire three competitors (Tar-gets). Pursuant to a plan, Parent formed anew corporation (Sub) and acquired all thepreferred shares and a majority of the com-mon shares of Sub. Sub became the ownerof the stock and assets of the Targets. Theformer stockholders of the Targets ex-changed their shares in the Targets forshares of Sub, shares of Parent, and cash.Because any direct ownership by Parent ofthe Targets was transitory and without realsubstance, the Court saw no significant dis-tinction between this transaction and thetransaction in Groman. Therefore, the Courtconcluded that Parent was not a party to thereorganization. Hence, the Parent stock re-ceived by the shareholders of the Targetsdid not confer the requisite continuity of in-terest.

In 1954, Congress enacted § 368(a)(2)(C)in response to Groman and Bashford. SeeS. Rep. No. 1622, 83d Cong., 2d Sess. 52,273, 275 (1954). As originally enacted,§ 368(a)(2)(C) applied only to reorganiza-

tions under §§ 368(a)(1)(A) and368(a)(1)(C), but Congress has sinceamended the statute to apply to other re-organizations. Specifically, Congressamended § 368(a)(2)(C) in 1964 to applyto reorganizations under § 368(a)(1)(B), and,in 1980, to reorganizations under§ 368(a)(1)(G).

Section 1.368–2(k)(1) of the Income TaxRegulations restates the general rule of§ 368(a)(2)(C) but permits the assets orstock acquired in certain types of reorga-nizations to be successively transferred toone or more corporations controlled (as de-fined in § 368(c)) in each transfer by thetransferor corporation without disqualify-ing the reorganization.

Section 1.368–2(f) provides that, if atransaction otherwise qualifies as a reor-ganization, a corporation remains a party tothe reorganization even though the stock orassets acquired in the reorganization aretransferred in a transaction described in§ 1.368–2(k).

To qualify as a reorganization under§ 368, a transaction must satisfy the con-tinuity of business enterprise (COBE) re-quirement. The COBE requirement isintended to ensure that reorganizations arelimited to readjustments of continuing in-terests in property under modified corpo-rate form. Section 1.368–1(d)(1). Section1.368–1(d)(1) provides that COBE requiresthe issuing corporation (generally the ac-quiring corporation) in a potential reorga-nization to either continue the targetcorporation’s historic business or use a sig-nificant portion of the target’s historic busi-ness assets in a business. Pursuant to§ 1.368–1(d)(4)(i), the issuing corpora-tion is treated as holding all of the busi-nesses and assets of all members of itsqualified group. Section 1.368–1(d)(4)(ii)defines a qualified group as one or morechains of corporations connected throughstock ownership with the issuing corpora-tion, but only if the issuing corporationowns directly stock meeting the require-ments of § 368(c) in at least one other cor-poration, and stock meeting therequirements of § 368(c) in each of the cor-porations (except the issuing corporation)is owned directly by one of the other cor-porations.

In Rev. Rul. 88–48, 1988–1 C.B. 117,in a taxable transaction, corporation X sold50 percent of its historic business assets tounrelated purchasers for cash. Immedi-

ately afterwards, pursuant to an overall plan,X transferred to corporation Y, a corpora-tion unrelated to X and the purchasers, allof its assets, including the cash from thesale. The ruling holds that X’s transfer ofassets to Y satisfied the substantially all re-quirement of § 368(a)(1)(C).

In Rev. Rul. 2001–25, 2001–1 C.B.1291, pursuant to a plan, corporation S, awholly owned subsidiary of corporation P,merged with and into corporation T in astate law merger. Immediately after themerger and as part of a plan that includedthe merger, T sold 50 percent of its oper-ating assets for cash to an unrelated cor-poration. After the sale of the assets tocorporation X, T retained the sales pro-ceeds. Without regard to the requirementthat T hold substantially all of the assets ofT and S immediately after the merger, themerger satisfied all the other requirementsapplicable to reorganizations under§§ 368(a)(1)(A) and 368(a)(2)(E). The Ser-vice ruled that even though T’s post-mergersale of 50 percent of its operating assets pre-vented T from holding substantially all ofits historic business assets immediately af-ter the merger, because the sales proceedscontinued to be held by T, the merger didnot violate the requirement of § 368(a)(2)(E)that the surviving corporation hold sub-stantially all of its properties after the trans-action.

In Rev. Rul. 2001–24, 2001–1 C.B.1290, corporation X merged with and intocorporation S, a newly organized, whollyowned subsidiary of corporation P, in atransaction intended to qualify as a reor-ganization under §§ 368(a)(1)(A) and368(a)(2)(D). S continued the historic busi-ness of X following the merger. Follow-ing the merger and as part of the plan ofreorganization, P transferred the S stock tocorporation S1, a preexisting, wholly ownedsubsidiary of P. The Service ruled that thetransaction satisfied the continuity of busi-ness enterprise requirement of § 1.368–1(d). Analyzing whether P’s transfer of theS stock to S1 caused P to fail to control Sfor purposes of § 368(a)(2)(D) and causedP to fail to be a party to the reorganiza-tion, the Service noted that the legislativehistory of § 368(a)(2)(E) suggests that for-ward and reverse triangular mergers shouldbe treated similarly. Section 1.368–2(k)(2)permits the transfer of stock or assets to acontrolled corporation following a reversetriangular merger under §§ 368(a)(1)(A) and

December 30, 2002 987 2002–52 I.R.B.

368(a)(2)(E), which supports permitting Pto transfer the S stock to S1 without caus-ing the transaction to fail to qualify as a re-organization under §§ 368(a)(1)(A) and368(a)(2)(D). Furthermore, although§§ 368(a)(2)(C) and 1.368–2(k) do not spe-cifically address P’s transfer of S stock toS1 following a reorganization under§§ 368(a)(1)(A) and 368(a)(2)(D), § 368(a)(2)(C) is permissive rather than exclu-sive or restrictive. Accordingly, the Ser-vice concluded that the transfer of the Sstock to S1 would not cause P to be treatedas not in control of S for purposes of§ 368(a)(2)(D) and would not cause P to failto be treated as a party to the reorganiza-tion.

ANALYSIS

Neither § 368(a)(2)(C) nor § 368(a)(2)(A)indicates that an acquiring corporation’stransfer of assets to a controlled subsid-iary necessarily prevents a transaction thatotherwise qualifies as a reorganization un-der § 368(a)(1)(D) from so qualifying. Be-cause § 368(a)(2)(C) is permissive and notexclusive or restrictive, the absence of§ 368(a)(1)(D) from § 368(a)(2)(C) does notindicate that such a transfer following atransaction that otherwise qualifies as a re-organization under § 368(a)(1)(D) will pre-vent the transaction from qualifying as such.Furthermore, although § 368(a)(2)(A) con-tains the parenthetical exception “other thanfor purposes of [§ 368(a)(2)(C)],” that ex-ception appears to have been provided inthe same spirit as § 368(a)(2)(C), i.e., to re-solve doubts about the qualification of trans-actions as reorganizations, and does notindicate that the transfer of assets to a con-trolled subsidiary necessarily prevents atransaction from qualifying as a reorgani-zation under § 368(a)(1)(D). See S. Rep. No.313, 99th Cong., 2d Sess. 914 (1986).

Accordingly, an acquiring corporation’stransfer of assets to a controlled subsid-iary following a transaction that other-wise qualifies as a reorganization under§ 368(a)(1)(D) will not cause a transac-tion to fail to qualify as such, provided thatthe original transferee is treated as acquir-ing substantially all of the assets of the tar-get corporation, the transaction satisfies theCOBE requirement and does not fail un-der the remote continuity principle of Gro-man and Bashford, and the transfer of assetsto a controlled corporation does not pre-

vent the original transferee from being a“party to the reorganization.”

Section 354(b)(1)(A) requires that, in areorganization under § 368(a)(1)(D), the cor-poration to which the assets are transferredacquire substantially all of the assets of thetransferor of such assets. In this case, therequirement that P acquire substantially allof T’s assets is satisfied because P retainsthe stock of S. See Rev. Rul. 2001–24; Rev.Rul. 88–48.

To qualify as a reorganization under§ 368(a)(1)(D), a transaction must satisfythe COBE requirement of § 1.368–1(d). Inthe present transaction, P and S constitutea qualified group, and S will continue T’shistoric business after the transfer. There-fore, the transaction satisfies the COBE re-quirement.

As described above, Congress enacted§ 368(a)(2)(C) in response to the SupremeCourt’s holdings in Groman and Bash-ford. After the enactment of § 368(a)(2)(C),however, the Service continued to apply theprinciples of Groman and Bashford to trans-actions that otherwise qualified as reorga-nizations under § 368(a)(1)(B). See Rev.Rul. 63–234, 1963–2 C.B. 148. In responseto this position, Congress expanded thescope of § 368(a)(2)(C) to include reorga-nizations under § 368(a)(1)(B). Congress’response to the application of the prin-ciples of Groman and Bashford has been tolimit the application of those principles. Im-plicit in Congress’ enactment and expan-sion of § 368(a)(2)(C) is a rejection of theprinciple that the transfer of acquired stockor assets to a controlled subsidiary of theacquiring corporation creates a remote con-tinuity problem that causes a transaction thatotherwise qualifies as a reorganization tofail to so qualify. See H.R. Rep. No. 1337,83d Cong., 2d Sess. A134 (1954) (stat-ing, after citing Groman and Bashford inreference to proposed legislation that ulti-mately became § 368(a)(2)(C), “a corpo-ration may not acquire assets with theintention of transferring them to a stranger”).

Under the COBE regulations, stock orassets acquired in transactions that satisfycertain provisions of § 368(a)(1) may betransferred without limitation to succes-sive lower-tier controlled subsidiaries withina qualified group. The Preamble to the fi-nal COBE regulations states that “the IRSand Treasury believe the COBE require-ments adequately address the issues raisedin Groman and Bashford and their prog-

eny. Thus, [the final COBE regulations] donot separately articulate rules addressing re-mote continuity of interest.” T.D. 8760,1998–1 C.B. 803, Supplementary Informa-tion (Explanation of Provisions). Accord-ingly, a transfer of acquired stock or assetswill not cause a transaction to fail for re-mote continuity if it satisfies the COBE re-quirement.

Under the facts described above, P’stransfer of the T assets to S pursuant to theplan of reorganization satisfies the COBErequirement. Therefore, the transaction doesnot fail for remote continuity.

Section 368(b) provides that the term “aparty to a reorganization” includes a cor-poration resulting from a reorganization, andboth corporations in the case of a reorga-nization resulting from the acquisition byone corporation of the properties of an-other. The use of the word “includes” in§ 368(b) indicates that the definition of“party to a reorganization” is not exclu-sive. See § 7701(c); Groman, supra, at 86(stating that “when an exclusive defini-tion is intended the word ‘means’ is em-ployed . . . whereas [in the definition of“party to a reorganization”] the word usedis ‘includes’”). Furthermore, § 1.368–2(f),which interprets § 368(b), provides that, ifa transaction otherwise qualifies as a reor-ganization, a corporation remains a party toa reorganization even though the stock orassets acquired in the reorganization aretransferred in a transaction described in§ 1.368–2(k). Section 1.368–2(k) does notreference § 368(a)(1)(D). Nonetheless, be-cause § 1.368–2(k) restates and interprets§ 368(a)(2)(C), which is a permissive andnot an exclusive or restrictive provision,§ 1.368–2(k) also should be viewed as per-missive and not exclusive or restrictive.Therefore, because §§ 368(b), 1.368–2(f),and 1.368–2(k) are not exclusive or restric-tive provisions, the absence of§ 368(a)(1)(D) from § 1.368–2(k) does notprevent a corporation from remaining aparty to a reorganization even if the ac-quired stock or assets are transferred to acontrolled subsidiary.

Reorganizations under § 368(a)(1)(D),like reorganizations under §§ 368(a)(1)(A)and 368(a)(1)(C), are asset reorganiza-tions. In reorganizations under §§ 368(a)(1)(A) and 368(a)(1)(C), the originaltransferee is treated as a party to a reorga-nization, even if the acquired assets aretransferred to a controlled subsidiary of the

2002–52 I.R.B. 988 December 30, 2002

original transferee. The differences be-tween reorganizations under § 368(a)(1)(D)on the one hand and reorganizations un-der §§ 368(a)(1)(A) and 368(a)(1)(C) on theother hand do not warrant treating the origi-nal transferee in a transaction that other-wise satisfies the requirements of areorganization under § 368(a)(1)(D) dif-ferently from the original transferee in a re-organization under § 368(a)(1)(A) or368(a)(1)(C) for purposes of § 368(b).Therefore, the original transferee in a trans-action that otherwise satisfies the require-ments of a reorganization under§ 368(a)(1)(D) is treated as a party to thereorganization, notwithstanding the origi-nal transferee’s transfer of acquired as-sets to a controlled subsidiary of the originaltransferee.

For the reasons set forth above, P’s trans-fer of the T assets to S will not prevent P’sacquisition of those assets from T in ex-change for P voting stock and cash fromqualifying as a reorganization under§ 368(a)(1)(D).

HOLDING

An acquiring corporation’s transfer of thetarget corporation’s assets to a subsidiarycontrolled by the acquiring corporation aspart of a plan of reorganization will not pre-vent a transaction that otherwise qualifiesas a reorganization under § 368(a)(1)(D)from so qualifying.

EFFECT ON OTHER REVENUERULINGS

Rev. Rul. 74–545, 1974–2 C.B. 122, isobsoleted. In Rev. Rul. 74–545, the Ser-vice ruled that, for purposes of§ 368(a)(2)(A), a transaction that quali-fied as a reorganization under § 368(a)(1)(C)was “described in” § 368(a)(1)(D) eventhough it did not qualify as a reorganiza-tion under § 368(a)(1)(D). In that ruling, thetarget corporation did not satisfy the re-quirement of § 354(b)(1)(B) because it didnot distribute all of its remaining assetsalong with the stock of the acquiring cor-poration. The Service reasoned that the pur-pose of § 368(a)(2)(A) was to ensure thatdivisive transactions would not be able toavoid the requirements of § 355 by quali-fying as a reorganization under§ 368(a)(1)(C). Congress, however, re-solved this problem in 1984 when it added§ 368(a)(2)(G), which requires the target

corporation in a reorganization under§ 368(a)(1)(C) to distribute the stock, se-curities, and other properties that it re-ceives, as well as its other properties, inpursuance of the plan of reorganization. Thisdistribution requirement prevents divisivereorganizations that are “described in”§ 368(a)(1)(D) from qualifying as reorga-nizations under § 368(a)(1)(C). Therefore,Rev. Rul. 74–545 is obsolete.

APPLICATION

Pursuant to § 7805(b)(8), the Service willnot apply the principles of this revenue rul-ing to challenge a taxpayer’s position thata transaction that occurs on or before De-cember 9, 2002, or a transaction that is ef-fected pursuant to a written agreement(subject to customary conditions) that isbinding on December 9, 2002, and at alltimes thereafter until the date of the trans-action does not qualify as a reorganiza-tion under § 368(a)(1)(D), provided that, ifthe taxpayer is the acquiring corporation (ora shareholder of the acquiring corpora-tion whose tax treatment of the transac-tion reflects the tax treatment by theacquiring corporation, such as a share-holder of an acquiring S corporation), thetarget corporation (and the shareholders ofthe target corporation whose tax treatmentof the transaction reflects the tax treat-ment by the target corporation) also treatsthe transaction as not qualifying as a reor-ganization under § 368(a)(1)(D) for Fed-eral income tax purposes, and if thetaxpayer is the target corporation (or ashareholder of the target corporation whosetax treatment of the transaction reflects thetax treatment by the target corporation), theacquiring corporation (and the sharehold-ers of the acquiring corporation whose taxtreatment of the transaction reflects the taxtreatment by the acquiring corporation) alsotreats the transaction as not qualifying asa reorganization under § 368(a)(1)(D) forFederal income tax purposes.

In addition, if a U.S. person that is ashareholder of a target corporation has takena position consistent with the principles ofthis revenue ruling for a transfer occur-ring on or after July 20, 1998, and on orbefore December 9, 2002, which transferinvolved the U.S. person’s exchange ofstock or securities of the target corpora-tion for stock or securities of a foreign ac-quiring corporation in which the foreignacquiring corporation transferred part or all

of the acquired corporation’s assets to a sub-sidiary controlled by the acquiring corpo-ration as part of the plan of reorganization,then such transfer constituted an indirecttransfer of stock or securities by the U.S.person to the foreign acquiring corpora-tion. See §§ 1.367(a)–1T(c) and 1.367(a)–3(d). To the extent such U.S. person has notentered into a gain recognition agreement(GRA) satisfying the requirements of§ 1.367(a)–3(b)(1)(ii) or 1.367(a)–3(c)(1)(iii)(B) in connection with a trans-fer for which the U.S. person has taken aposition consistent with the principles of thisrevenue ruling, the U.S. person will betreated as having timely satisfied the re-quirements for such a GRA if such U.S.person attaches a GRA that otherwise com-plies with the requirements of § 1.367(a)–8to its timely filed (including extensions)original tax return for the taxable year thatincludes December 9, 2002.

Further, the Service and the Treasury areconsidering amending the regulations un-der § 368 to reflect the principles of thisrevenue ruling.


The principal author of this revenue rul-ing is Karen Lau of the Office of ChiefCounsel. For further information regard-ing this revenue ruling, contact Ms. Lau at(202) 622–3300 (not a toll-free call).

Section 472.—Last in,First-out Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; departmentstores. The October 2002 Bureau of La-bor Statistics price indexes are accepted foruse by department stores employing the re-tail inventory and last-in, first-out inven-tory methods for valuing inventories for taxyears ended on, or with reference to,October 31, 2002.

Rev. Rul. 2002–87

The following Department Store Inven-tory Price Indexes for October 2002 wereissued by the Bureau of Labor Statistics.The indexes are accepted by the InternalRevenue Service, under § 1.472–1(k) of the

December 30, 2002 989 2002–52 I.R.B.

Income Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for appropriate ap-plication to inventories of department storesemploying the retail inventory and last-in, first-out inventory methods for tax yearsended on, or with reference to, October 31,2002.

The Department Store Inventory PriceIndexes are prepared on a national basis andinclude (a) 23 major groups of depart-ments, (b) three special combinations of themajor groups — soft goods, durable goods,

and miscellaneous goods, and (c) a store to-tal, which covers all departments, includ-ing some not listed separately, except forthe following: candy, food, liquor, tobacco,and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STOREINVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups Oct.2001

Oct.2002

Percent Changefrom Oct. 2001to Oct. 20021

1. Piece Goods ........................................................................................ 500.3 485.7 –2.92. Domestics and Draperies .................................................................... 592.0 581.6 –1.83. Women’s and Children’s Shoes ......................................................... 675.5 660.4 –2.24. Men’s Shoes........................................................................................ 872.5 895.6 2.65. Infants’ Wear....................................................................................... 631.1 628.9 –0.36. Women’s Underwear .......................................................................... 575.3 544.2 –5.47. Women’s Hosiery................................................................................ 358.0 339.8 –5.18. Women’s and Girls’ Accessories........................................................ 573.7 551.6 –3.99. Women’s Outerwear and Girls’ Wear ................................................ 398.4 388.2 –2.610. Men’s Clothing ................................................................................... 587.3 573.0 –2.411. Men’s Furnishings .............................................................................. 628.2 599.3 –4.612. Boys’ Clothing and Furnishings......................................................... 490.5 459.4 –6.313. Jewelry ................................................................................................ 919.6 897.1 –2.414. Notions ................................................................................................ 797.1 808.9 1.515. Toilet Articles and Drugs.................................................................... 981.6 975.1 –0.716. Furniture and Bedding........................................................................ 628.8 626.4 –0.417. Floor Coverings .................................................................................. 616.0 592.6 –3.818. Housewares ......................................................................................... 767.1 745.8 –2.819. Major Appliances ................................................................................ 224.1 223.7 –0.220. Radio and Television .......................................................................... 52.6 47.6 –9.521. Recreation and Education2 ................................................................. 89.2 85.2 –4.522. Home Improvements2 ......................................................................... 125.4 124.6 –0.623. Auto Accessories2 ............................................................................... 110.2 111.3 1.0

Groups 1 – 15: Soft Goods .......................................................................... 598.6 582.7 –2.7Groups 16 – 20: Durable Goods .................................................................... 419.1 407.4 –2.8Groups 21 – 23: Misc. Goods2....................................................................... 98.2 95.7 –2.5

Store Total3 532.4 518.1 –2.71 Absence of a minus sign before the percentage change in this column signifies a price increase.2 Indexes on a January 1986=100 base.3 The store total index covers all departments, including some not listed separately, except for the following: candy, food, li-

quor, tobacco, and contract departments.

2002–52 I.R.B. 990 December 30, 2002


The principal author of this revenue rul-ing is Michael Burkom of the Office of As-sociate Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue ruling, contactMr. Burkom at (202) 622–7718 (not a toll-free call).

Section 692.—Income Taxesof Members of Armed Forcesand Victims of Certain Terror-ist Attacks on Death

How does the estate of a “qualified decedent,” asdefined in secton 2201(b) of the Internal RevenueCode, compute the federal estate tax under section2201, as amended by the Victims of Terrorism Tax Re-lief Act of 2001, Pub. L. No. 107–134, section 103,115 Stat. 2427 (2002)? See Rev. Rul. 2002–86, page993.

Section 801.—Tax Imposed

26 CFR 1.801–3: Definitions.

A revenue ruling that sets forth circumstances un-der which arrangements between a domestic parent cor-poration and its wholly owned insurance subsidiaryconstitute insurance for Federal income tax pur-poses. See Rev. Rul. 2002–89, page 984.

Whether a transaction where amounts are paid forprofessional liability coverage by a number of do-mestic operating subsidiaries to an insurance subsid-iary of a common parent constitutes insurance forFederal income tax purposes? See Rev. Rul. 2002–90, page 985.

A revenue ruling that sets forth circumstances un-der which a group captive of unrelated insureds quali-fies as an insurance company. See Rev. Rul. 2002–91, on this page.

Section 831.—Tax on Insur-ance Companies Other ThanLife Insurance Companies

26 CFR 1.831–3: Tax on insurance companies (other

than life or mutual), mutual marine insurance com-

panies, mutual fire insurance companies issuing per-

petual policies, and mutual fire and flood insurance

companies operating on the basis of premium depos-

its; taxable years beginning after December 31, 1962.

A revenue ruling that sets forth circumstances un-der which arrangements between a domestic parent cor-poration and its wholly owned insurance subsidiaryconstitute insurance for Federal income tax pur-poses. See Rev. Rul. 2002–89, page 984.

Whether a transaction where amounts are paid forprofessional liability coverage by a number of do-mestic operating subsidiaries to an insurance subsid-iary of a common parent constitutes insurance forFederal income tax purposes? See Rev. Rul. 2002–90, page 985.

(Also §§ 162, 801; 1.162–1, 1.801–3.)

Captive insurance; group captive. Thisruling sets forth circumstances under whichamounts paid to a group captive of unre-lated insureds are deductible as insurancepremiums and in which the group captivequalifies as an insurance company.

Rev. Rul. 2002–91

ISSUE

Whether a “group captive” formed by arelatively small group of unrelated busi-nesses involved in a highly concentrated in-dustry to provide insurance coverage is aninsurance company within the meaning of§ 831 of the Internal Revenue Code un-der the circumstances described below.

FACTS

X is one of a small group of unrelatedbusinesses involved in one highly concen-trated industry. Businesses involved in thisindustry face significant liability hazards.X and the other businesses involved in thisindustry are required by regulators to main-tain adequate liability insurance coveragein order to continue to operate. Businessesthat participate in this industry have sus-tained significant losses due to the occur-rence of unusually severe loss events. Asa result, affordable insurance coverage forbusinesses that participate in this industryis not available from commercial insur-ance companies.

X and a significant number of the busi-nesses involved in this industry (Mem-bers) form a so-called “group captive” (GC)to provide insurance coverage for stated li-ability risks. GC provides insurance only toX and the other Members. The business op-erations of GC are separate from the busi-ness operation of each Member. GC isadequately capitalized.

No Member owns more than 15% ofGC, and no Member has more than 15%of the vote on any corporate governance is-sue. In addition, no Member’s individualrisk insured by GC exceeds 15% of the to-tal risk insured by GC. Thus, no one mem-ber controls GC.

GC issues insurance contracts andcharges premiums for the insurance cov-erage provided under the contracts. GC usesrecognized actuarial techniques, based, inpart, on commercial rates for similar cov-erage, to determine the premiums to becharged to an individual Member.

GC pools all the premiums it receivesin its general funds and pays claims out ofthose funds. GC investigates any claimmade by a Member to determine the va-lidity of the claim prior to making any pay-ment on that claim. GC conducts no otherbusiness than the issuing and administer-ing of insurance contracts.

No Member has any obligation to payGC additional premiums if that Member’sactual losses during any period of cover-age exceed the premiums paid by thatMember. No Member will be entitled to arefund of premiums paid if that Member’sactual losses are lower than the premi-ums paid for coverage during any period.Premiums paid by any Member may beused to satisfy claims of the other Mem-bers. No Member that terminates its insur-ance coverage or sells its ownership interestin GC is required to make additional pre-mium or capital payments to GC to coverlosses in excess of its premiums paid. More-over, no Member that terminates its cov-erage or disposes of its ownership interestin GC is entitled to a refund of premiumspaid in excess of insured losses.

LAW AND ANALYSIS



Section 831(a) of the Code provides thattaxes computed under section 11 are im-

December 30, 2002 991 2002–52 I.R.B.

posed for each tax year on the taxable in-come of every insurance company otherthan a life insurance company.

Section 1.801–3(a) provides that an in-surance company is “a company whose pri-mary and predominant business activity isthe issuing of insurance or annuity con-tracts or the reinsuring of risks underwrit-ten by insurance companies.”

Neither the Code nor the regulations de-fine the terms “insurance” or “insurancecontract.” The United States Supreme Court,however, has explained that in order for anarrangement to constitute insurance for fed-eral income tax purposes, both risk shift-ing and risk distribution must be present.Helvering v. LeGierse, 312 U.S. 531 (1941).

Risk shifting occurs if a person facingthe possibility of an economic loss trans-fers some or all of the financial conse-quences of the potential loss to the insurer,such that a loss by the insured does not af-fect the insured because the loss is offsetby the insurance payment. Risk distribu-tion incorporates the statistical phenom-enon known as the law of large numbers.Distributing risk allows the insurer to re-duce the possibility that a single costlyclaim will exceed the amount taken in aspremiums and set aside for the payment ofsuch a claim. By assuming numerous rela-tively small, independent risks that occurrandomly over time, the insurer smooths outlosses to match more closely its receipt ofpremiums. Clougherty Packing Co. v. Com-missioner, 811 F.2d 1297, 1300 (9th Cir.1987). Risk distribution necessarily en-tails a pooling of premiums, so that a po-tential insured is not in significant partpaying for its own risks. See Humana, Inc.v. Commissioner, 881 F.2d 247, 257 (6thCir. 1989).

No court has held that a transaction be-tween a parent and its wholly-owned sub-sidiary satisfies the requirements of riskshifting and risk distribution if only the risksof the parent are “insured.” See Stearns-Roger Corp. v. United States, 774 F.2d 414(10th Cir. 1985); Carnation Co. v. Com-missioner, 640 F.2d 1010 (9th Cir. 1981),cert. denied, 454 U.S. 965 (1981). How-ever, courts have held that an arrange-ment between a parent and its subsidiarycan constitute insurance because the par-ent’s premiums are pooled with those of un-related parties if (i) insurance risk is present,(ii) risk is shifted and distributed, and (iii)the transaction is of the type that is insur-

ance in the commonly accepted sense. See,e.g., Ocean Drilling & Exploration Co. v.United States, 988 F.2d 1135 (Fed. Cir.1993); AMERCO, Inc. v. Commissioner, 979F.2d 162 (9th Cir. 1992).

Additional factors to be considered in de-termining whether a captive insurance trans-action is insurance include: whether theparties that insured with the captive trulyface hazards; whether premiums charged bythe captive are based on commercial rates;whether the validity of claims was estab-lished before payments are made; andwhether the captive’s business operationsand assets are kept separate from the busi-ness operations and assets of its sharehold-ers. Ocean Drilling & Exploration Co. at1151.

In Rev. Rul. 2001–31, 2001–1 C.B.1348,the Service stated that it will not invoke theeconomic family theory in Rev. Rul. 77–316 with respect to captive insurance ar-rangements. Rev. Rul. 2001–31 provides,however, that the Service may continue tochallenge certain captive insurance trans-actions based on the facts and circum-stances of each case.

Rev. Rul. 78–338, 1978–2 C.B.107, pre-sented a situation in which 31 unrelated cor-porations created a group captive insurancecompany to provide those corporations withinsurance that was not otherwise avail-able. In that ruling, none of the unrelatedcorporations held a controlling interest inthe group captive. In addition, no indi-vidual corporation’s risk exceeded 5 per-cent of the total risks insured by the groupcaptive. The Service concluded that be-cause the corporations that owned, and wereinsured by, the group captive were not eco-nomically related, the economic risk of losscould be shifted and distributed among theshareholders that comprised the insuredgroup.

X and the other Members face true in-surable hazards. X and the other Mem-bers are required to maintain generalliability insurance coverage in order to con-tinue to operate in their industry. X and theother Members are unable to obtain afford-able insurance from unrelated commer-cial insurers due to the occurrence ofunusually severe loss events. Notwithstand-ing the fact that the group of Members issmall, there is a real possibility that a Mem-ber will sustain a loss in excess of the pre-miums it paid. No individual Member willbe reimbursed for premiums paid in ex-

cess of losses sustained by that Member. Fi-nally, X and the other Members areunrelated. Therefore, the contracts issued byGC to X and the other Members are insur-ance contracts for federal income tax pur-poses, and the premiums paid by theMembers are deductible under § 162.

GC is an entity separate from its own-ers. GC is adequately capitalized. GC is-sues insurance contracts, charges premiums,and pays claims after investigating the va-lidity of the claim. GC will not engage inany business activities other than issuing andadministering insurance contracts. Premi-ums charged by GC will be actuarially de-termined using recognized actuarialtechniques, and will be based, in part, oncommercial rates. As GC’s only business ac-tivity is the business of insurance, it is taxedas an insurance company.

HOLDING

The arrangement between X and GCconstitutes insurance for federal income taxpurposes, and the amounts paid as “insur-ance premiums” by X to GC pursuant tothat arrangement are deductible as ordi-nary and necessary business expenses. GCis in the business of issuing insurance andwill be treated as an insurance company tax-able under § 831.


The principal author of this revenue rul-ing is Melissa Luxner of the Office of theAssociate Chief Counsel (Financial Insti-tutions & Products). For further informa-tion regarding this revenue ruling, contactMs. Luxner at (202) 622–3142 (not a toll-free call).

Section 2001.—Impositionand Rate of Tax

26 CFR 20.2001–1: Valuation of adjusted taxable gifts

and section 2701(d) taxable events.

How does the estate of a “qualified decedent,” asdefined in section 2201(b) of the Internal RevenueCode, compute the federal estate tax under section2201, as amended by the Victims of Terrorism Tax Re-lief Act of 2001, Pub. L. No. 107–134, section 103,115 Stat. 2427 (2002)? See Rev. Rul. 2002–86, page993.

2002–52 I.R.B. 992 December 30, 2002

Section 2010.—Unified CreditAgainst Estate Tax

How does the estate of a “qualified decedent,” asdefined in section 2201(b) of the Internal RevenueCode, compute the federal estate tax under section2201, as amended by the Victims of Terrorism Tax Re-lief Act of 2001, Pub. L. No. 107–134, section 103,115 Stat. 2427 (2002)? See Rev. Rul. 2002–86, on thispage.

Section 2011.—Credit forState Death Taxes

26 CFR 20.2011–1: Credit for state death taxes.


Section 2058.—State DeathTaxes


Section 2201.—CombatZone-Related Deaths ofMembers of the ArmedForces and Deaths of Victimsof Certain Terrorist Attacks

26 CFR 20.2201–1: Members of the Armed Forcesdying during an induction period.(Also §§ 692, 2001, 2010, 2011, 2058, 6018;20.2001–1, 20.2011–1.)

Combat zone-related deaths anddeaths of victims of certain terrorist at-tacks. This ruling provides sample estatetax calculations, under section 2201 of theCode, for the estates of victims of speci-fied terrorist attacks and members of thearmed forces who died as a result of ac-tive service in a combat zone.

Rev. Rul. 2002–86

ISSUE

How does the estate of a “qualified de-cedent,” as defined in § 2201(b) of the In-ternal Revenue Code, compute the federalestate tax under § 2201, as amended by theVictims of Terrorism Tax Relief Act of2001, Pub. L. No. 107–134, § 103, 115 Stat.2427 (2002)?

FACTS

D, a resident of state X, is a qualified de-cedent. During D’s lifetime, D did not makeany adjusted taxable gifts (defined in§ 2001(b)). In filing Form 706, the UnitedStates Estate (and Generation-SkippingTransfer) Tax Return, D’s executor does notelect out of the application of § 2201(a). D’sestate pays the applicable state death tax im-posed by state X.

Situation 1. D died in 2001, a year inwhich state X imposed a state death taxequal to the state death tax credit allow-able under § 2011(a). The amount of D’staxable estate is $2,936,818.

Situation 2. The facts are the same as inSituation 1, except that the amount of D’staxable estate is $8,762,500.

Situation 3. D dies in 2005, a year inwhich state X imposes a state death taxequal to the state death tax credit that wouldhave been allowable under § 2011(a) as itexisted prior to the passage of the Eco-nomic Growth and Tax Relief Reconcilia-tion Act of 2001 (EGTRRA), Pub. L. No.107–16, 115 Stat. 38 (2001). The amountof D’s taxable estate before the deductionfor state death taxes is $5,953,939.

LAW AND ANALYSIS

Section 2001(a) imposes an estate tax onthe transfer of the taxable estate of everydecedent who is a U.S. citizen or resi-dent. The estate tax is computed using therate schedule contained in § 2001(c).

Section 2201(a) provides that for pur-poses of computing the federal estate taxof the estate of a qualified decedent, the rateschedule set forth in § 2201(c) shall be usedinstead of the rate schedule contained in§ 2001(c), unless the executor of the es-tate elects not to have § 2201 apply.

Under § 2201(b), a qualified decedent is:(1) any citizen or resident of the UnitedStates dying while in active service of the

Armed Forces of the United States, if thedecedent (a) was killed in action while serv-ing in a combat zone, or (b) died as a re-sult of wounds, disease, or injury suffered,while serving in a combat zone, and whilein the line of duty, by reason of a hazardto which the decedent was subjected as anincident of the service; and (2) any speci-fied terrorist victim, as defined by§ 692(d)(4).

Under § 692(d)(4), a “specified terror-ist victim” is any decedent who dies as aresult of wounds or injury incurred as a re-sult of the terrorist attacks against the UnitedStates on April 19, 1995, or September 11,2001, or who dies as a result of illness in-curred as a result of an attack involving an-thrax occurring on or after September 11,2001, and before January 1, 2002. Any in-dividual identified by the Attorney Gen-eral to have been a participant or conspiratorin any such attack or a representative of ei-ther is not a specified terrorist victim.

If § 2201 applies, the estate tax (includ-ing the aggregate amount of gift tax pay-able on any adjusted taxable gifts under§ 2001(b)(2)) is computed in the same man-ner as provided in § 2001(b), except that therate schedule provided in § 2201(c) is usedto compute the tax instead of the rate sched-ule in § 2001(c). The rate schedule con-tained in § 2001(c) continues to be used todetermine the applicable credit amount (theunified credit) available to the estate un-der § 2010(c).

Section 2011(f), added by EGTRRA§ 532(a) as § 2011(g) and redesignated as§ 2011(f) by the Victims of Terrorism TaxRelief Act of 2001 § 103(b)(1), provides thatthe state death tax credit under § 2011 willnot be allowable to the estates of dece-dents dying after December 31, 2004. In-stead, the estates of decedents dying afterthat date will be allowed a deduction un-der § 2058(a) for estate and inheritancetaxes actually paid to any state or the Dis-trict of Columbia in respect of any prop-erty included in the gross estate. Thus,beginning in 2005, no state death taxes willbe owed by a decedent’s estate to a juris-diction that imposes a death tax only equalto the allowable federal credit for state deathtaxes.

Many states, however, impose state deathtaxes based on the state death tax creditcomputed under § 2011 as it existed priorto the passage of EGTRRA or on someother basis unrelated to the amount of any

December 30, 2002 993 2002–52 I.R.B.

federal credit. Beginning in 2005, state deathtaxes paid to these jurisdictions will be de-ductible in computing a decedent’s tax-

able estate, provided all the requirementsof § 2058 are satisfied. These state deathtaxes will reduce an estate’s federal es-

tate tax liability but will increase the to-tal death tax liability.

In Situation 1 and Situation 2, D died in 2001, a year in which a state death tax credit was allowable under § 2011 and state Ximposed a state death tax equal to the allowable § 2011 credit. Accordingly, in Situation 1, D’s estate will have no federal estatetax liability and no state death tax liability, as follows:

Taxable Estate $ 2,936,818

Tentative Estate Tax Computed under Rate Schedule in § 2201(c) $ 220,550

Less: Allowable Unified Credit under § 2010(a) and (c) $ (220,550)

Subtotal $ 0

Less: State Death Tax Credit under § 2011 in Excess of Subtotal $ (0)

Federal Estate Tax $ 0

In Situation 2, D’s estate will have no federal estate tax liability but will have a state death tax liability of $882,200, as follows:


Tentative Estate Tax Computed under Rate Schedule in § 2201(c) $ 1,102,750


Subtotal $ 882,200

Less: State Death Tax Credit under § 2011 $ (882,200)


In Situation 3, D dies in 2005, a year in which state death taxes qualify for a deduction under § 2058, rather than a credit under§ 2011. State X imposes a state death tax equal to the credit that would have been allowable under § 2011 prior to amendments byEGTRRA. Accordingly, D’s estate will have no federal estate tax liability but will pay a state death tax of $505,273, as follows:

Taxable Estate Before Application of the § 2058 Deduction $ 5,953,939

Deduction for State Death Taxes Paid under § 2058 $ (505,273)


Tentative Estate Tax Computed under Rate Schedule in § 2201(c) $ 555,800



2002–52 I.R.B. 994 December 30, 2002

Under § 6018(a)(1), a Form 706 must befiled for the estate of a decedent who is aU.S. citizen or resident who dies in 2001if the gross estate exceeds $675,000 (the ap-plicable credit amount). This amount in-creases to $1,000,000 in years 2002–2003,$1,500,000 in years 2004–2005, $2,000,000in years 2006–2008, and $3,500,000 in year2009. (The applicable credit amount fornon-resident non-citizens is lower than theseamounts.) Accordingly, in Situations 1, 2,and 3, D’s estate must file a Form 706 not-withstanding that no federal estate tax isdue.

HOLDINGS

In Situations 1 and 2, no federal estatetax is due for a qualifying decedent whodied in the year 2001 if the taxable estateis not more than $8,762,500 and the stateimposes a death tax that is at least equal tothe state death tax credit under § 2011. Ifthe taxable estate exceeds $2,936,818, how-ever, a state death tax will be due.

In Situation 3, under current law, no fed-eral estate tax will be due for a qualify-ing decedent who dies in the year 2005 ifthe taxable estate before the deduction forstate death taxes does not exceed$5,953,939 and the state imposes a statedeath tax equal to the state death tax creditunder § 2011 as it existed prior toEGTRRA. However, the state death tax willbe due.

EFFECT ON OTHER REVENUERULINGS

Rev. Rul. 78–361, 1978–2 C.B. 246, ismodified and superseded.


The principal author of this revenue rul-ing is Mayer Samuels of the Office of theAssociate Chief Counsel (Passthroughs andSpecial Industries). For further informa-tion regarding this revenue ruling, con-tact Mr. Samuels at (202) 622–3090 (not atoll-free call).

Section 4980B.—ContinuationCoverage Requirements ofGroup Health Plans

26 CFR 54.4980B–7: Duration of COBRA continu-

ation coverage.

Duration of COBRA continuation cov-erage and divorce. This ruling providesguidance on when COBRA continuationcoverage must commence if, in anticipa-tion of divorce, an employee drops the cov-erage of a spouse under a group health planof the employee’s employer.

Rev. Rul. 2002–88

ISSUE

If an employee eliminates the cover-age of the employee’s spouse under a grouphealth plan in anticipation of their divorce,when must a plan that is required to makeCOBRA continuation coverage available tothe spouse begin to make that coverageavailable?

FACTS

A group health plan subject to COBRAallows eligible employees to elect cover-age for themselves and their spouses. Anemployee who has elected coverage for theemployee’s spouse can notify the plan toeliminate the spouse’s coverage, and thespouse’s coverage will be terminated as ofthe end of the month in which the noticeis provided. Under the terms of the plan,a spouse loses eligibility for coverage onthe date of divorce from an eligible em-ployee.

Employee E is enrolled in the grouphealth plan and elected coverage for E’sspouse. A decree of divorce is issued dis-solving the marriage of E and E’s spouse.In anticipation of their divorce, E noti-fied the plan administrator to eliminate thecoverage for E’s spouse, and coverage forE’s spouse was terminated as of the last dayof the month. There are no facts to indi-cate that E’s spouse would have other-wise lost coverage under the plan before thedivorce. The plan administrator is pro-vided notice of the divorce within 60 daysafter the issuance of the divorce decree.

LAW AND ANALYSIS

Section 4980B of the Internal RevenueCode requires certain group health plans tomake continuation coverage available to cer-tain individuals who would otherwise losetheir coverage under the plan as a result of

certain occurrences (the “COBRA continu-ation coverage requirements”). Section4980B imposes an excise tax if a plan sub-ject to the COBRA continuation coveragerequirements fails to comply with those re-quirements.

Under section 4980B, the obligation ofa plan to make COBRA continuation cov-erage available arises in connection with aqualifying event. The individuals to whomthe COBRA continuation coverage must bemade available are qualified beneficia-ries.

Under Q&A–1 of § 54.4980B–3 of theMiscellaneous Excise Tax Regulations, anindividual generally is a qualified benefi-ciary if the individual is covered under agroup health plan on the day before a quali-fying event by virtue of being on that daythe spouse of a covered employee.

Under Q&A–1 of § 54.4980B–4, a di-vorce or legal separation of a covered em-ployee from the covered employee’s spouseis a qualifying event if, under the terms ofthe plan, the divorce or legal separationcauses the spouse (or a dependent child ofthe covered employee) to lose coverage un-der the plan. Paragraph (c) in Q&A–1 of§ 54.4980B–4 states that if coverage iseliminated in anticipation of a qualifyingevent, such as an employee’s eliminating thecoverage of the employee’s spouse in an-ticipation of a divorce or legal separa-tion, the elimination is disregarded indetermining whether the qualifying eventcauses a loss of coverage.

Q&A–1 of § 54.4980B–7 states thatCOBRA continuation coverage must be pro-vided for a period that begins on the dateof the qualifying event. Under Q&A–1 andQ&A–4 of § 54.4980B–7, a plan gener-ally has the obligation to make COBRAcontinuation coverage available to a quali-fied beneficiary in the case of a divorce orlegal separation for 36 months after the dateof the divorce or legal separation. This ob-ligation can end earlier for a variety of rea-sons, such as failure to make timelypayment to the plan for the qualified ben-eficiary’s coverage.

Q&A–2 of § 54.4980B–6 provides thata group health plan is not required to of-fer a qualified beneficiary the opportu-nity to elect COBRA continuation coveragein the case of a divorce or legal separa-tion if notice of the divorce or legal sepa-ration is not provided to the planadministrator within 60 days after the later

December 30, 2002 995 2002–52 I.R.B.

of the date of the divorce or legal separa-tion or the date the qualified beneficiarywould lose coverage on account of the di-vorce or legal separation.

E eliminated the coverage of E’s spousein anticipation of their divorce. Under theregulations, this elimination is ignored indetermining whether the divorce is a quali-fying event. There are no facts to indi-cate that E’s spouse would have otherwiselost coverage under the plan before the di-vorce. Thus, if the elimination in anticipa-tion of the divorce is ignored, E’s spousewould have remained covered until the di-vorce and then lost coverage because of it.Consequently, the divorce is a qualifyingevent and E’s former spouse is a quali-fied beneficiary. Because notice of the di-vorce was provided to the plan administratorwithin 60 days after the issuance of the di-vorce decree, the plan has an obligation tomake COBRA continuation coverage avail-able to E’s former spouse for a period ofup to 36 months.

The period of COBRA continuation cov-erage begins on the date of the qualifyingevent. There is no authority under the stat-ute or regulations for requiring a plan tomake COBRA continuation coverage avail-able before the date of a qualifying event.Thus, the group health plan in the facts de-scribed above has the obligation to makeCOBRA continuation coverage available toE’s former spouse effective as of the dateof the divorce for a period of up to 36months.

HOLDING

If an employee eliminates the cover-age of the employee’s spouse under a grouphealth plan in anticipation of their divorce,a plan that is required to make COBRAcontinuation coverage available to thespouse must begin to make that coverageavailable as of the date of the divorce.


The principal author of this revenue rul-ing is Russ Weinheimer of the Office of Di-vision Counsel/Associate Chief Counsel(Tax Exempt and Government Entities). Forfurther information regarding this revenueruling, contact Russ Weinheimer orYurlinda Mathis at (202) 622–6080 (not atoll-free number).

Section 6018.—Estate TaxReturns

How does the estate of a “qualified decedent,” asdefined in section 2201(b) of the Internal RevenueCode, compute the federal estate tax under section2201, as amended by the Victims of Terrorism Tax Re-lief Act of 2001, Pub. L. No. 107–134, section 103,115 Stat. 2427 (2002)? See Rev. Rul. 2002–86, page993.

2002–52 I.R.B. 996 December 30, 2002

Part III. Administrative, Procedural, and Miscellaneous

Announcement ofAmendments to RegulationsUnder Section 367 of theInternal Revenue Code

Notice 2002–77

The Internal Revenue Service (the “Ser-vice”) is publishing Rev. Rul. 2002–85 con-temporaneously with the issuance of thisNotice. Rev. Rul. 2002–85 holds that an ac-quiring corporation’s transfer of the tar-get corporation’s assets to a subsidiarycontrolled by the acquiring corporation pur-suant to a plan of reorganization will notprevent a transaction that otherwise quali-fies as a reorganization under section368(a)(1)(D) from so qualifying. This no-tice announces that the Treasury and theService will amend the regulations underTreas. Reg. § 1.367(a)–3(d) to provide spe-cifically that a reorganization under sec-tion 368(a)(1)(D) followed by the transferof all or a portion of a target corporation’sassets to a controlled subsidiary pursuantto a plan of reorganization constitutes an in-direct transfer of stock or securities for pur-poses of Treas. Reg. § 1.367(a)–3.

I. BACKGROUND

Section 367(a)(1) requires a U.S. per-son who transfers property (including stockor securities) to a foreign corporation inconnection with an exchange described insection 332, 351, 354, 356, or 361 to rec-ognize gain (but not loss) on the transfer,unless the transfer qualifies for an excep-tion to this general rule. Transfers cov-ered by section 367(a)(1) also includeindirect and constructive transfers. Treas.Reg. § 1.367(a)–1T(c)(1).

Treas. Reg. § 1.367(a)–3 contains rulesthat address transfers of stock or securi-ties by a U.S. person to a foreign corpo-ration in an exchange described in section367(a). For these purposes, certain trans-actions that are in form asset transfers aretreated as stock transfers. For example,Treas. Reg. § 1.367(a)–3(d)(1)(v) treats asan indirect stock transfer a U.S. person’sexchange of stock or securities of a cor-poration for voting stock or securities of aforeign acquiring corporation in a reorga-nization described in section 368(a)(1)(C)in which the acquiring corporation trans-

fers the acquired corporation’s assets to asubsidiary controlled by the acquiring cor-poration in a transaction described in sec-tion 368(a)(2)(C). In the case of areorganization in which part but not all ofthe assets of the acquired corporation aretransferred pursuant to section 368(a)(2)(C),the transaction is considered to be an in-direct transfer of stock or securities only tothe extent of the assets so transferred. Treas.Reg. § 1.367(a)–3(d)(1)(v).

In Rev. Rul. 2002–85, pursuant to a planof reorganization, (i) a corporation (the “tar-get corporation”) transfers all of its assetsto another corporation (the “acquiring cor-poration”) in exchange for considerationconsisting of 70 percent acquiring corpo-ration voting stock and 30 percent cash, (ii)the target corporation then liquidates, dis-tributing the acquiring corporation votingstock and cash to its shareholder, and (iii)the acquiring corporation subsequentlytransfers the target corporation’s assets toa preexisting, wholly owned subsidiary ofthe acquiring corporation. Rev. Rul.2002–85 holds that the acquiring corpora-tion’s transfer of the target corporation’s as-sets to its controlled subsidiary as part ofa plan of reorganization will not prevent atransaction that otherwise qualifies as a re-organization under section 368(a)(1)(D)from so qualifying.

II. TREATMENT OF A REORGAN-IZATION UNDER SECTION 368(a)(1)(D) FOLLOWED BY A TRANSFEROF THE ACQUIRED CORPORA-TION’S ASSETS TO A CONTROLLEDSUBSIDIARY UNDER THE INDIRECTSTOCK TRANSFER RULES.

Consistent with the current rules fortransactions described in sections368(a)(1)(C) and (a)(2)(C), the Treasury andthe Service will amend the regulations un-der section 367 to provide specifically thata U.S. person’s exchange of stock or se-curities of a corporation (the acquired cor-poration) for stock or securities of a foreignacquiring corporation in a reorganization un-der section 368(a)(1)(D) in which the for-eign acquiring corporation transfers part orall of the acquired corporation’s assets toa subsidiary controlled by the acquiring cor-poration pursuant to the plan of reorgani-zation constitutes an indirect transfer ofstock or securities by the U.S. person to the

foreign acquiring corporation under Treas.Reg. § 1.367(a)–3(d). In the case of a re-organization under section 368(a)(1)(D) inwhich part but not all of the assets of theacquired corporation are transferred to asubsidiary controlled by the acquiring cor-poration pursuant to the plan of reorgani-zation, the regulations will provide that thetransaction is considered to be an indirecttransfer of stock or securities to the ex-tent of the assets so transferred. The amend-ment to the regulations under section 367described in this notice will be effective fortransfers occurring after December 9, 2002.For additional guidance concerning trans-fers that occurred on or after July 20, 1998and on or before December 9, 2002, seeRev. Rul. 2002–85.

III. DRAFTING INFORMATION ANDREQUEST FOR COMMENTS

The principal author of this notice isRichard Osborne of the Office of Associ-ate Chief Counsel (International). How-ever, other personnel from the Service andthe Treasury participated in its develop-ment. For further information regarding thisnotice, contact Mr. Osborne at (202) 622–3036 (not a toll-free call).

Written comments concerning this no-tice may be submitted to the AssociateChief Counsel (International), Attention:Richard Osborne (Notice 2002–77), Room4573, CC:Intl:Br4, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW, Wash-ington, DC 20224. Alternatively, taxpayersmay submit comments directly to the IRSInternet site at http://www.irs.ustreas.gov/prod/tax_regs/comments.html. Commentswill be available for public inspection andcopying. The Treasury and the Service re-quest comments by January 15, 2003.

26 CFR 601.201: Rulings and determination let-

ters.

Rev. Proc. 2002–75

SECTION 1. PURPOSE AND NATUREOF CHANGE

The purpose of this revenue procedureis to modify Rev. Proc. 2002–3, 2002–1I.R.B. 117, by deleting sections 4.01(11) and

December 30, 2002 997 2002–52 I.R.B.

4.01(41). Sections 4.01(11) and 4.01(41)provide that the Internal Revenue Servicewill not ordinarily rule on the applicationof §§ 162 and 816 of the Internal Rev-enue Code to certain insurance arrange-ments.

SECTION 2. BACKGROUND

.01 Rev. Proc. 2002–3 sets forth thoseprovisions of the Internal Revenue Code un-der the jurisdiction of the Associate ChiefCounsel (Corporate), the Associate ChiefCounsel (Financial Institutions & Prod-ucts), the Associate Chief Counsel (In-come Tax & Accounting), the AssociateChief Counsel (Passthroughs & Special In-dustries), the Associate Chief Counsel (Pro-cedure and Administration), and DivisionCounsel/Associate Chief Counsel (Tax Ex-empt and Government Entities) relating toissues on which the Internal Revenue Ser-vice will not issue letter rulings or deter-mination letters.

.02 Section 4 of Rev. Proc. 2002–3 setsforth those areas in which rulings or de-termination letters will not ordinarily be is-sued.

Section 4.01(11) provides as follows:Section 162.—Trade or Business

Expenses.—Whether the requisite risk shift-ing and risk distribution necessary to con-stitute insurance are present for purposes ofdetermining the deductibility under § 162of amounts paid (premiums) by a taxpayerfor insurance.

Section 4.01 (41) provides as follows:Section 816.—Life Insurance Company

Defined.—Whether the requisite risk shift-ing and risk distribution necessary to con-stitute insurance are present for purposes ofdetermining if a company is an “insur-ance company” under § 1.801–3(a) of theIncome Tax Regulations, unless the facts ofthe transaction are within the scope of Rev.Rul. 78–338, 1978–2 C.B. 107, or Rev. Rul.77–316, 1977–2 C.B. 53.

.03 The Service has provided guidanceregarding whether, for federal income taxpurposes, an arrangement constitutes in-surance and whether an entity that pro-vides insurance to an insured that has anownership interest in that entity will betreated as an insurance company. Rev. Rul.77–316 involved an insurance subsidiarythat assumed only the risks of its ownersand/or affiliates and concluded that to theextent the assumed risks were not trans-ferred outside of the economic family, the

transaction would not be treated as insur-ance. Under the economic family theory, theamounts paid as premiums to the subsid-iary would not be insurance premiums de-ductible under § 162 and the subsidiarywould not be an insurance company. In Rev.Rul. 78–338, the Service distinguished theeconomic family theory advanced in Rev.Rul. 77–316 and concluded that premi-ums paid to an insurer owned by its 31insureds-shareholders were deductible un-der § 162.

.04 Rev. Rul. 2001–31, 2001–1 C.B.1348, announced that the economic fam-ily theory would no longer be followed,Rev. Rul. 77–316 was obsoleted, and Rev.Rul. 78–338 was modified. Rev. Rul.2001–31 also stated that certain captivetransactions may be challenged based uponthe facts and circumstances of each case.

.05 Since publication of Rev. Rul. 2001–31, the Service has provided additionalguidance on the tax treatment of certaincaptive insurance arrangements. Rev. Rul.2002–89, 2002–52 I.R.B. 984, addressed ar-rangements between a parent corporationand its wholly-owned captive insurance sub-sidiary that conducted varying amounts ofinsurance business with unrelated parties.In Rev. Rul. 2002–90, 2002–52 I.R.B. 985,the Service concluded that the premiumspaid by 12 operating subsidiaries to a cap-tive insurance subsidiary owned by a com-mon parent are deductible under § 162.Finally, in Rev. Rul. 2002–91, 2002–52I.R.B. 991, the Service concluded that agroup captive, which was formed by fewerthan 31 unrelated insureds, with each in-sured having no more that 15% of the to-tal risk, was an insurance company.

.06 Consistently with the case-by-caseapproach announced in Rev. Rul. 2001–31, and the guidance provided in Rev. Rul.2002–89, Rev. Rul. 2002–90, and Rev. Rul.2002–91, this Revenue Procedure deletessections 4.01(11) and 4.01(41) of Rev. Proc.2002–3. The Service will now consider rul-ing requests regarding the proper tax treat-ment of a captive insurance company.However, some questions arising in the con-text of a captive ruling request are so in-herently factual (within the meaning ofsection 4.02(1) of Rev. Proc. 2002–3) thatcontact should be made with the appropri-ate Service function prior to the prepara-tion of such request to determine whetherthe Service will issue the requested rul-ing. In addition, for information concern-

ing the Large and Mid-Size BusinessDivision Pre-Filing Agreement Program, seeRev. Proc. 2001–22, 2001–1 C.B. 745.

SECTION 3. PROCEDURE

Rev. Proc. 2002–3 is modified by de-leting section 4.01(11) and section 4.01(41).

SECTION 4. INQUIRIES

Inquiries regarding whether the Ser-vice considers a proposed captive transac-tion so inherently factual that it cannot rule,should be directed to Chief, Branch 4, Of-fice of the Associate Chief Counsel (Fi-nancial Institutions & Products) at (202)622–3970 (not a toll-free call).

SECTION 5. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2002–3 is modified.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effective De-cember 10, 2002.


The principal author of this revenue pro-cedure is William Sullivan of the Office ofthe Associate Chief Counsel (Financial In-stitutions & Products). For further infor-mation regarding this revenue procedure,contact Mr. Sullivan at (202) 622–3970 (nota toll-free call).

2002–52 I.R.B. 998 December 30, 2002

Part IV. Items of General Interest

Changes to Excise Taxes,Effective After December 31,2002

Announcement 2002–115

The following changes are effective af-ter December 31, 2002, and will be onForm 720 or in the Instructions for Form

720 for the 1st quarter of 2003, and onForm 8849 (Schedules 1, 3, and 4), re-vised January 2003.

1. The tax on sales of luxury passen-ger vehicles (IRS No. 92) will expire.

2. The tax on use of international airtravel facilities (IRS No. 27) increases foramounts paid during 2003 to:

• $13.40 per person for flights that be-gin or end in the United States and

• $6.70 per person for domestic seg-ments that begin or end in Alaskaor Hawaii (applies only to depar-tures).

3. Fuel tax changes

The following tax rates will increase:

10% gasohol (IRS No. 59) $.1327.7% gasohol (IRS No. 75) .143965.7% gasohol (IRS No. 76) .15436Gasoline removed or entered for the production of 10% gasohol (IRS No. 58) .14666Gasoline removed or entered for the production of 7.7% gasohol (IRS No. 73) .15596Gasoline removed or entered for the production of 5.7% gasohol (IRS No. 74) .16369

The gasohol blending credit rates for gasoline taxed at the full rate will decrease:

10% gasohol (CRN 356) $.037347.7% gasohol (CRN 357) .028045.7% gasohol (CRN 363) .02031

The following other fuels tax rates (IRS No. 79) will increase:

Qualified ethanol $.1315Special motor fuels/alcohol mixture containing ethanol .132Diesel fuel/alcohol mixture containing ethanol .192Diesel fuel sold for diesel/alcohol mixture containing ethanol .21333Aviation fuel/alcohol mixture containing ethanol .087Aviation fuel sold for aviation/alcohol mixture containing ethanol .09666

The tax rates for alcohol (ethanol) sold as but used as fuel (IRS No. 51) will decrease:

At least 190 proof $.52At least 190 proof and benefited from the small ethanol producer credit .62At least 150 proof but less than 190 proof .3852At least 150 proof but less than 190 proof and benefited from the small ethanol producer credit .4852

December 30, 2002 999 2002–52 I.R.B.

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as“rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe theeffect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus, ifan earlier ruling held that a principleapplied to A, and the new ruling holdsthat the same principle also applies to B,the earlier ruling is amplified. (Comparewith modified, below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previouslypublished ruling and points out an essen-tial difference between them.

Modified is used where the substanceof a previously published position isbeing changed. Thus, if a prior rulingheld that a principle applied to A but notto B, and the new ruling holds that it

applies to both A and B, the prior rulingis modified because it corrects a pub-lished position. (Compare with amplifiedand clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly usedin a ruling that lists previously publishedrulings that are obsoleted because ofchanges in law or regulations. A rulingmay also be obsoleted because the sub-stance has been included in regulationssubsequently adopted.

Revoked describes situations where theposition in the previously published rul-ing is not correct and the correct positionis being stated in the new ruling.

Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over aperiod of time in separate rulings. If the

new ruling does more than restate thesubstance of a prior ruling, a combinationof terms is used. For example, modifiedand superseded describes a situationwhere the substance of a previously pub-lished ruling is being changed in part andis continued without change in part and itis desired to restate the valid portion ofthe previously published ruling in a newruling that is self contained. In this case,the previously published ruling is firstmodified and then, as modified, is super-seded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in currentuse and formerly used will appear inmaterial published in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.

E.O.—Executive Order.ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign Corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.

PO—Possession of the U.S.PR—Partner.PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statements of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D.—Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z—Corporation.

2002–52 I.R.B. i December 30, 2002

Numerical Finding List1

Bulletin 2002–26 through 2002–51

Announcements:

2002–59, 2002–26 I.R.B. 282002–60, 2002–26 I.R.B. 282002–61, 2002–27 I.R.B. 722002–62, 2002–27 I.R.B. 722002–63, 2002–27 I.R.B. 722002–64, 2002–27 I.R.B. 722002–65, 2002–29 I.R.B. 1822002–66, 2002–29 I.R.B. 1832002–67, 2002–30 I.R.B. 2372002–68, 2002–31 I.R.B. 2832002–69, 2002–31 I.R.B. 2832002–70, 2002–31 I.R.B. 2842002–71, 2002–32 I.R.B. 3232002–72, 2002–32 I.R.B. 3232002–73, 2002–33 I.R.B. 3872002–74, 2000–33 I.R.B. 3872002–75, 2002–34 I.R.B. 4162002–76, 2002–35 I.R.B. 4712002–77, 2002–35 I.R.B. 4712002–78, 2002–36 I.R.B. 5142002–79, 2002–36 I.R.B. 5152002–80, 2002–36 I.R.B. 5152002–81, 2002–37 I.R.B. 5332002–82, 2002–37 I.R.B. 5332002–83, 2002–38 I.R.B. 5642002–84, 2002–37 I.R.B. 5332002–85, 2002–39 I.R.B. 6242002–86, 2002–39 I.R.B. 6242002–87, 2002–39 I.R.B. 6242002–88, 2002–38 I.R.B. 5642002–89, 2002–39 I.R.B. 6262002–90, 2002–40 I.R.B. 6842002–91, 2002–40 I.R.B. 6852002–92, 2002–41 I.R.B. 7092002–93, 2002–41 I.R.B. 7092002–94, 2002–42 I.R.B. 7282002–95, 2002–42 I.R.B. 7282002–96, 2002–43 I.R.B. 7562002–97, 2002–43 I.R.B. 7572002–98, 2002–43 I.R.B. 7582002–99, 2002–43 I.R.B. 7582002–100, 2002–44 I.R.B. 7992002–101, 2002–44 I.R.B. 8002002–102, 2002–44 I.R.B. 8022002–103, 2002–45 I.R.B. 8362002–104, 2002–45 I.R.B. 8362002–105, 2002–46 I.R.B. 8722002–106, 2002–46 I.R.B. 8722002–107, 2002–48 I.R.B. 9232002–108, 2002–49 I.R.B. 9522002–109, 2002–49 I.R.B. 9522002–110, 2002–50 I.R.B. 9702002–111, 2002–50 I.R.B. 9712002–112, 2002–50 I.R.B. 9712002–113, 2002–51 I.R.B. 9832002–114, 2002–51 I.R.B. 983

Court Decisions:

2075, 2002–38 I.R.B. 5482076, 2002–47 I.R.B. 875

Notices:

2002–42, 2002–27 I.R.B. 362002–43, 2002–27 I.R.B. 382002–44, 2002–27 I.R.B. 392002–45, 2002–28, I.R.B. 932002–46, 2002–28 I.R.B. 962002–47, 2002–28 I.R.B. 972002–48, 2002–29 I.R.B. 1302002–49, 2002–29 I.R.B. 1302002–50, 2002–28 I.R.B. 982002–51, 2002–29 I.R.B. 1312002–52, 2002–30 I.R.B. 1872002–53, 2002–30 I.R.B. 1872002–54, 2002–30 I.R.B. 1892002–55, 2002–36 I.R.B. 4812002–56, 2002–32 I.R.B. 3192002–57, 2002–33 I.R.B. 3792002–58, 2002–35 I.R.B. 4322002–59, 2002–36 I.R.B. 4812002–60, 2002–36 I.R.B. 4822002–61, 2002–38 I.R.B. 5632002–62, 2002–39 I.R.B. 5742002–63, 2002–40 I.R.B. 6442002–64, 2002–41 I.R.B. 6902002–65, 2002–41 I.R.B. 6902002–66, 2002–42 I.R.B. 7162002–67, 2002–42 I.R.B. 7162002–68, 2002–43 I.R.B. 7302002–69, 2002–43 I.R.B. 7302002–70, 2002–44 I.R.B. 7652002–71, 2002–45 I.R.B. 8302002–72, 2002–46 I.R.B. 8432002–73, 2002–46 I.R.B. 8442002–74, 2002–47 I.R.B. 8842002–75, 2002–47 I.R.B. 8842002–76, 2002–48 I.R.B. 9172002–78, 2002–48 I.R.B. 9192002–79, 2002–50 I.R.B. 9642002–80, 2002–51 I.R.B. 980

Proposed Regulations:

REG–209116–89, 2002–47 I.R.B. 889REG–248110–96, 2002–26 I.R.B. 19REG–251003–96, 2002–49 I.R.B. 935REG–110311–98, 2002–28 I.R.B. 109REG–103823–99, 2002–27 I.R.B. 44REG–103829–99, 2002–27 I.R.B. 59REG–103735–00, 2002–28 I.R.B. 109REG–103735–00, 2002–45 I.R.B. 832REG–103736–00, 2002–45 I.R.B. 834REG–106457–00, 2002–26 I.R.B. 23REG–106871–00, 2002–30 I.R.B. 190REG–106876–00, 2002–34 I.R.B. 392REG–106879–00, 2002–34 I.R.B. 402REG–107524–00, 2002–28 I.R.B. 110REG–112306–00, 2002–44 I.R.B. 767REG–115285–01, 2002–27 I.R.B. 62REG–115781–01, 2002–33 I.R.B. 380REG–116644–01, 2002–31 I.R.B. 268

Proposed Regulations—Continued:

REG–123345–01, 2002–32 I.R.B. 321REG–126024–01, 2002–27 I.R.B. 64REG–136311–01, 2002–36 I.R.B. 485REG–150313–01, 2002–44 I.R.B. 777REG–164754–01, 2002–30 I.R.B. 212REG–165868–01, 2002–31 I.R.B. 270REG–103777–02, 2002–47 I.R.B. 889REG–106359–02, 2002–34 I.R.B. 405REG–122564–02, 2002–26 I.R.B. 25REG–123305–02, 2002–26 I.R.B. 26REG–124256–02, 2002–33 I.R.B. 383REG–124667–02, 2002–44 I.R.B. 791REG–127380–02, 2002–50 I.R.B. 969REG–131478–02, 2002–47 I.R.B. 892REG–133254–02, 2002–34 I.R.B. 412REG–134026–02, 2002–40 I.R.B. 684REG–141832–02, 2002–48 I.R.B. 921REG–143321–02, 2002–48 I.R.B. 922

Revenue Procedures:

2002–43, 2002–28 I.R.B. 992002–44, 2002–26 I.R.B. 102002–45, 2002–27 I.R.B. 402002–46, 2002–28 I.R.B. 1052002–47, 2002–29 I.R.B. 1332002–48, 2002–37 I.R.B. 5312002–49, 2002–29 I.R.B. 1722002–50, 2002–29 I.R.B. 1732002–51, 2002–29 I.R.B. 1752002–52, 2002–31 I.R.B. 2422002–53, 2002–31 I.R.B. 2532002–54, 2002–35 I.R.B. 4322002–55, 2002–35 I.R.B. 4352002–56, 2002–36 I.R.B. 4832002–57, 2002–39 I.R.B. 5752002–58, 2002–40 I.R.B. 6442002–59, 2002–39 I.R.B. 6152002–60, 2002–40 I.R.B. 6452002–61, 2002–39 I.R.B. 6162002–62, 2002–40 I.R.B. 6832002–63, 2002–41 I.R.B. 6912002–64, 2002–42 I.R.B. 7182002–65, 2002–41 I.R.B. 7002002–66, 2002–42 I.R.B. 7252002–67, 2002–43 I.R.B. 7332002–68, 2002–43 I.R.B. 7532002–69, 2002–45 I.R.B. 8312002–70, 2002–46 I.R.B. 8452002–71, 2002–48 I.R.B. 8502002–72, 2002–49 I.R.B. 9312002–73, 2002–49 I.R.B. 9322002–74, 2002–51 I.R.B. 980

Revenue Rulings:

2002–38, 2002–26 I.R.B. 42002–39, 2002–27 I.R.B. 332002–40, 2002–27 I.R.B. 302002–41, 2002–28 I.R.B. 752002–42, 2002–28 I.R.B. 762002–43, 2002–28 I.R.B. 852002–44, 2002–28 I.R.B. 842002–45, 2002–29 I.R.B. 1162002–46, 2002–29 I.R.B. 117

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 2002–1 through 2002–25 is

in Internal Revenue Bulletin 2002–26, dated July 1, 2002.

December 30, 2002 ii 2002–52 I.R.B.

Revenue Rulings—Continued:

2002–47, 2002–29 I.R.B. 1192002–48, 2002–31 I.R.B. 2392002–49, 2002–32 I.R.B. 2882002–50, 2002–32 I.R.B. 2922002–51, 2002–33 I.R.B. 3272002–52, 2002–34 I.R.B. 3882002–53, 2002–35 I.R.B. 4272002–54, 2002–37 I.R.B. 5272002–55, 2002–37 I.R.B. 5292002–56, 2002–37 I.R.B. 5262002–57, 2002–37 I.R.B. 5262002–58, 2002–38 I.R.B. 5412002–59, 2002–38 I.R.B. 5572002–60, 2002–40 I.R.B. 6412002–61, 2002–40 I.R.B. 6392002–62, 2002–42 I.R.B. 7102002–63, 2002–45 I.R.B. 8032002–64, 2002–41 I.R.B. 6882002–65, 2002–43 I.R.B. 7292002–66, 2002–45 I.R.B. 8122002–67, 2002–47 I.R.B. 8732002–68, 2002–45 I.R.B. 8082002–69, 2002–44 I.R.B. 7602002–70, 2002–50 I.R.B. 9582002–71, 2002–44 I.R.B. 7632002–72, 2002–44 I.R.B. 7592002–73, 2002–45 I.R.B. 8052002–74, 2002–45 I.R.B. 8142002–75, 2002–45 I.R.B. 8122002–76, 2002–46 I.R.B. 8402002–77, 2002–45 I.R.B. 8062002–78, 2002–48 I.R.B. 9152002–79, 2002–48 I.R.B. 9082002–80, 2002–49 I.R.B. 9252002–81, 2002–49 I.R.B. 9282002–82, 2002–51 I.R.B. 9782002–83, 2002–49 I.R.B. 9272002–84, 2002–50 I.R.B. 953

Social Security Contribution andBenefit Base; Domestic EmployeeCoverage Threshold:

2002–46, I.R.B. 871

Treasury Decisions:

8997, 2002–26 I.R.B. 68998, 2002–26 I.R.B. 18999, 2002–28 I.R.B. 789000, 2002–28 I.R.B. 879001, 2002–29 I.R.B. 1289002, 2002–29 I.R.B. 1209003, 2002–32 I.R.B. 2949004, 2002–33 I.R.B. 3319005, 2002–32 I.R.B. 2909006, 2002–32 I.R.B. 3159007, 2002–33 I.R.B. 3499008, 2002–33 I.R.B. 3359009, 2002–33 I.R.B. 3289010, 2002–33 I.R.B. 3419011, 2002–33 I.R.B. 3569012, 2002–34 I.R.B. 3899013, 2002–38 I.R.B. 5429014, 2002–35 I.R.B. 4299015, 2002–40 I.R.B. 6429016, 2002–40 I.R.B. 6289017, 2002–45 I.R.B. 8159018, 2002–45 I.R.B. 823

Treasury Decisions—Continued:

9019, 2002–47 I.R.B. 8749020, 2002–48 I.R.B. 9079021, 2002–51 I.R.B. 9739022, 2002–48 I.R.B. 9099023, 2002–50 I.R.B. 955

2002–52 I.R.B. iii December 30, 2002

Finding List of Current Actionson Previously Published Items1

Bulletin 2002–26 through 2002–51

Announcements:

98–99Superseded byRev. Proc. 2002–44, 2002–26 I.R.B. 10

2000–4Modified byAnn. 2002–60, 2002–26 I.R.B. 28


2002–91Corrected byAnn. 2002–114, 2002–51 I.R.B. 983

Notices:

88–100, Section VClarified and obsoleted byRev. Proc. 2002–74, 2002–51 I.R.B. 980

89–25Modified byRev. Rul. 2002–62, 2002–42 I.R.B. 710

97–26Modified and superseded byNotice 2002–62, 2002–39 I.R.B. 574

2001–6Superseded byNotice 2002–63, 2002–40 I.R.B. 644

2001–37Modified byRev. Proc. 2002–73, 2002–49 I.R.B. 932


2002–92Corrected byAnn. 2002–103, 2002–45 I.R.B. 836

Proposed Regulations:

EE–79–89Withdrawn byREG–209116–89, 2002–47 I.R.B. 889

REG–208280–86Withdrawn byREG–136311–01, 2002–36 I.R.B. 485

REG–209114–90Corrected byAnn. 2002–65, 2002–29 I.R.B. 182


REG–103823–99Corrected byAnn. 2002–67, 2002–30 I.R.B. 237Ann. 2002–79, 2002–36 I.R.B. 515

Proposed Regulations—Continued:



REG–105369–00Clarified byNotice 2002–52, 2002–30 I.R.B. 187Corrected byAnn. 2002–67, 2002–30 I.R.B. 237















Revenue Procedures:

66–50Modified, amplified, and superseded byNotice 2002–75, 2002–47 I.R.B. 884




91–23Modified and superseded byRev. Proc. 2002–52, 2002–31 I.R.B. 242





96–53Amplified byRev. Proc. 2002–52, 2002–31 I.R.B. 242


2001–12Obsoleted byT.D. 9004, 2002–33 I.R.B. 331





2001–46Modified and amplified byRev. Proc. 2002–65, 2002–41 I.R.B. 700

1 A cumulative list of current actions on previously published

items in Internal Revenue Bulletins 2002–1 through 2002–25 is

in Internal Revenue Bulletin 2002–26, dated July 1, 2002.

December 30, 2002 iv 2002–52 I.R.B.

Revenue Procedures—Continued:



2001–52Updated byRev. Proc. 2002–66, 2002–42 I.R.B. 725




2002–9Modified and amplified byRev. Proc. 2002–46, 2002–28 I.R.B. 105Rev. Proc. 2002–65, 2002–41 I.R.B. 700Rev. Rul. 2002–73, 2002–45 I.R.B. 805Rev. Proc. 2002–74, 2002–51 I.R.B. 980Amplified, clarified, and modified byRev. Proc. 2002–54, 2002–35 I.R.B. 432


2002–15Modified and superseded byRev. Proc. 2002–59, 2002-39 I.R.B. 615


2002–19Amplified and clarified byRev. Proc. 2002–54, 2002–35 I.R.B. 432


2002–37Clarified and modified byNotice 2002–72, 2002–46 I.R.B. 843



2002–67Modified byAnn. 2002–110, 2002–50 I.R.B. 970

Revenue Rulings:


55–534Distinguished byRev. Rul. 2002–60, 2002–40 I.R.B. 641






69–259Modified and superseded byRev. Rul. 2002–50, 2002–32 I.R.B. 292

69–595Obsoleted in part byT.D. 9010, 2002–33 I.R.B. 341

70–608Obsoleted in part byT.D. 9010, 2002–33 I.R.B. 341


76–225Revoked byREG–115781–01, 2002–33 I.R.B. 380


85–50Obsoleted byT.D. 2002–33 I.R.B. 341

92–17Amplified byRev. Rul. 2002–49, 2002–32 I.R.B. 288

92–75Clarified byRev. Proc. 2002–52, 2002–31 I.R.B. 242



Revenue Rulings—Continued:

99–14Modified and superseded byRev. Rul. 2002–69 2002–44 I.R.B. 760


2001–64Supplemented and superseded byRev. Rul. 2002–78, 2002–48 I.R.B. 915

2001–65Supplemented and superseded byRev. Rul. 2002–79, 2002–48 I.R.B. 908



2002–46Modified byRev. Rul. 2002–73, 2002–45 I.R.B. 805

Treasury Decisions:

8869Corrected byAnn. 2002–106, 2002–46 I.R.B. 872






2002–52 I.R.B. v December 30, 2002496-919/60063��